1. Field of the Invention
The present invention relates to analyzing marketing efforts. More particularly, the present invention relates to a system and method for evaluating the cause and effect of advertising and marketing programs using card transaction data.
2. Background
Consumers spend over $7 trillion each year on products and services that are distributed amongst an enormous number of participants. Competition for consumer spending is intense and has steadily grown over the last two decades accompanied by increased marketing and product proliferation. Currently, there is more than $233 billion spent on advertising and marketing by companies in the US alone. According to a study by the Federal Reserve Bank of Dallas, more than 30,000 new consumer product stock-keeping units (SKUs) are introduced annually today compared with only 4,400 in 1980. All this marketing and introduction of new products in the consumer market is for the same basic objectives: build new customer relationships through prospecting, enhance loyalty and capture a greater share of wallet from existing customers, and keep the most profitable customers.
The net result of all this activity is that consumers are not only being inundated by marketing messages but they also have to choose between many more options than ever before. For the players in the consumer market this means that each dollar spent on marketing is having less of an impact and becomes more costly as competitive pressures drive margins lower. Coupled with shortening business cycles and quicker competitive reaction to success, survival and profitability is predicated on the ability to make quick, accurate and meaningful decisions on where to allocate spending and how to most effectively target and reach the right customers.
Therefore, to be successful, manufacturers, merchants and service providers are being forced to commit significant effort and capital to understanding how to improve on (a) determining who is buying their product, why, when and where; (b) selling the right product in the right marketplace; (c) gleaning consumer feedback to try and improve their products and services or to design new ones; (d) targeting the consumers that buy the most, most frequently and most recently; and (e) targeting those customers that are most likely to buy.
Analytics and the information required for effective analyses have seen a more significant role given the situation consumer-oriented companies find themselves in at present. In the past decade, companies have spent billions of dollars on warehousing and analyzing their own data.
However, gaining real insight into customer behavior is still an extremely difficult goal to achieve since causality and predictability are very hard to infer from just company specific sales and inventory data.
Referring to FIG. 1, a table showing advertisement expenditures between 1999-2001 is illustrated. As shown, companies spend marketing dollars across a range of different mediums, both nationally and locally. This activity is designed to build awareness, induce prospects to buy and build greater loyalty in existing customers. Yet, for each marginal dollar spent, companies do not know if they have spent money on the best medium, in the right setting (local or national), directed towards the right customers, whether prospects or repeat buyers. Thus, a company does not truly know if their advertising efforts are effective.
Presently, companies measure media effectiveness by awareness, which is loosely correlated with bottom line profits and loss impact. Companies measure impact through changes in attitudes, which are also loosely correlated with actual purchase intent and behavior, and therefore, bottom line profits and loss impact. Companies measure results from a lift in sales but with little ability to understand whether a customer's behavior is really changing over time. The inability to measure a customer's behavior over time and tie consumers' behavior to marketing makes it difficult to determine the optimal marketing mix choice of product, price, positioning, and packaging.
With marketing budgets reaching into the tens of millions for some companies, this lack of clarity is a major problem. Even with a measurable medium, such as, local, store-specific and product specific offers, which is fairly easy to measure, companies can measure response but have a hard time understanding what is really driving consumer behavior and therefore, the real bottom line impact of the dollars spent. Also, while companies measure response to a specific promotion, e.g., a coupon, they cannot determine if the coupon itself induced a purchase or what it means for the next time a similar purchase occasion arises for a customer.
Marketing is just one part of a company's expenses that is tied to its bottom line. Merchandising, operations, customer service are all part of the offering that a company makes to its customers and prospects. In addition to media expenditure, companies commit hundreds of billions of dollars to investments in branding, marketing research, product development, distribution planning and site location, prospecting and acquiring customers. Each is a significant activity but similar uncertainty as to the effectiveness of decisions made with respect to these areas exists. Information is the critical ingredient needed to make accurate and knowledgeable decisions in all these areas. Any information and analysis that better informs a company such that it can make a more accurate and correct decision along any of its activities is extremely valuable. Most important is real-time detailed information that allows a company to measure and therefore better predict consumer behavior, relative to the market, in response to specific changes in its offerings.
Given that market information can inform all types of decision making, there are five specific information areas that define a company's need: performance tracking, media tracking and effectiveness, product assortment and pricing management, location/market optimization, and consumer needs and insight.
Performance tracking encompasses all measures of an organization's financial efficiency and return on investment. Depending on the financial model of the organization, focus may be on indicators of a firm's profit path (net profit/net sales) or turnover path (return on assets as the product of inventory turn and net profit). Different areas of an organization track additional indicators of growth and productivity. For example, marketing efforts would most directly be assessed in terms of sales or share growth and the return on the expenses associated with the marketing activities. The key financial data include net sales, gross margin or profit, expenses, net profit, assets, liabilities, inventory turnover rate, etc. Market data used in financial performance indices are sales volume and share of sales.
Media tracking and effectiveness determine the impact of advertising and other promotional vehicles on sales and financial productivity. Typically, impact on sales volume is measured indirectly and imprecisely via consumer survey research conducted with target consumers. The studies are designed to measure brand and advertising awareness, as well as perceived image of and propensity to purchase the promoted product. Measures are taken before, after or daily to allow comparisons of when advertising is on-air and when it is not in terms of claimed brand awareness and purchase. If these key metrics show increases, the promotional activity is considered to have been effective. These qualitative measures are tracked in parallel with hard sales and share data to provide some degree of confirmation that the survey data moved in the same pattern as sales. If data is available, sales and shifts in sales volume are tracked within key consumer target group segments identified in the marketing objectives.
Media effectiveness and media mix modeling currently used at major packaged goods manufacturers and some large retailers attempt to determine a more direct linkage of marketing and promotional activity to top line growth. Additionally, the specific mix of promotions (e.g. TV, coupons, national newspapers, local distribution of flyers, etc.) is assessed in terms of each promotion's respective contribution to topline performance. Multiple regression analyses are conducted to determine which media provided the best return on investment. Typically, more of an effective or efficient media would subsequently be purchased and the analysis repeated to continue to optimize the mix. Data used in market mix modeling includes market inputs, i.e. the type of promotion and media (advertising, coupons, flyers, billboards) and the media weights by time frame (nationally or regionally depending on data available and the location of the business itself). The analysis uses “output” measures of sales volume and share as the key revenue indicators.
The goal of managing product assortment and price is delivering “the right products at the right price” to fulfill consumer need while simultaneously meeting the company's financial goals. Selecting and/or developing products requires knowledge of consumers and how they interact with the category. Consumer attitude and trend surveys, focus groups, and test market studies are common means of obtaining this understanding. Specifically, knowledge of the product's life cycle, whether fad, fashion or staple, is important to forecasting sales. Indicators of demand (sales and share) go into tracking return on assets or investment to plan and evaluate performance. Sales are forecast by taking into account historical sales volume, economic trends and customer information such as reaction to the product prior to launch and test market results to help predict consumer acceptance.
Ensuring consumer demand for products requires determining which products to offer which typically entails segmenting consumers of a company's products into groups whose needs are similar and devising products and services to meet those sets of needs. Product development and market forecasting research help to reduce the risk of failure. Additionally, tracking trends and understanding the life cycle of a particular category is necessary to drive product development and selection to assure future demand. Determining pricing strategies and setting optimal price points is also critical for ensuring demand. For packaged goods and other products with longer lifecycles, identifying the optimal price point begins with exploratory research to understand the trade-off between volume (lower price) and margin (higher price) as well as overall fit with brand and product quality image. In-store tests are also conducted as a more reliable means of setting price.
In an effort to offer the right products at the right price, many retailers engage in the process of category management, which seeks to optimize the sales and profits of a category. This is accomplished by understanding how consumers shop a category, e.g. what requirements are they seeking to fulfill on any given shopping trip, what they consider to be the competitive set and how they make purchase decisions, what else they buy in the same visit, etc. For example, knowing that all parents go grocery shopping with their young children has led cereal manufacturers and retailers to place the child-targeted brands on the lower shelf where kids can see them (and demand their purchase).
Deciding in which geographic markets to enter or expand is a critical area for manufacturers, retailers and service providers alike. Companies with retail locations must also select trade areas and specific store sites that will generate customers while being consistent with the retail strategy. The location decision is critical because of the attendant high costs and long-term commitment to establishing a retail presence. For this reason, companies devote considerable resources and budget to obtaining information that will allow them to accurately identify a good site and reduce the risk of failure or sub-optimal performance in that market.
Information used in market and location decision-making typically involves first identifying the characteristics of a product's target group and/or the drivers of a successful store, then locating the regions, trading areas and sites that provide access to a concentration of that segment of the population. The selection criteria vary according to the product category and retail strategy but are commonly a combination of socio-demographic and geographic characteristics. For example, a retailer may target upscale female shoppers, and the brand positioning and store format have proved to be most successful in ‘main street’ type locations. Selecting a site would entail identifying sites that fit the physical and geographic criteria in high-income towns. On the other hand, if the big box retailer is opening a “destination” site, extreme proximity to target consumers would be less important than would easy access to highways and ample parking.
The information used in market and location optimization includes socio-demographic characteristics of the target group and population, such as, location of current or prospective customers, physical characteristics of a site such as traffic patterns, parking, business climate and regulations that could affect construction, hiring practices, identification, location of competitors, consumer spending on the category, and population and economic outlook to help forecast future demand.
Producing and distributing products and services for consumers necessitates identifying and satisfying consumer needs better than the competition. Obtaining an understanding of how and why consumers make purchase decisions, the attitudes they have toward companies and the challenges consumers face everyday are central to all aspects of product development and distribution, branding, marketing, and customer satisfaction.
Obtaining consumer insights typically involves studies with large samples of consumers to capture attitudes, lifestyle characteristics and product usage via one-time consumer surveys or on-going panels. Many of these studies are proprietary research custom-designed to provide understanding on a specific category, brand or general attitudes.
This need for market information has not gone unnoticed. As a result, an entire industry has grown up around consumer companies to help articulate and target marketing messages and measure their effectiveness, based on the best available market information, as well as to help make the right decisions on the other major activities. However, the current market information that is available still does not adequately serve the needs of players in the consumer market space due to the difficulties in gathering it. Market information is a critical business need in the consumer market today. It is also a business need that spans industry segments, the value chain of an industry and within a company, different types and levels of users. For any industry segment, the value chain comprises three types of players who are consumer focused, who while working together, need to use market information from their own perspective. The three players are manufacturers, retailers and advertising and media agencies.
Manufacturers who build products but sell them through retailers need market information to determine how well their product is doing in the market and how best to create the right incentives to make consumers purchase it. They also need market information to understand how to change their products over time. The difficulty facing manufacturers is that they do not interact directly with consumers creating a knowledge gap about market information that needs to be filled.
Retailers interact with consumers on an ongoing basis since consumers are the core component of their business. Since how they interact, who they interact with, and what they are offering are the critical components of their business, their need for market information is even greater. The local nature of each chain store, the local geo-demographic differences in the customer base between stores, and the variations in competition, means retailers also need site-specific market information. In addition, since retailers interact with consumers frequently, ongoing real-time market information to measure how frequent changes in marketing mix effect behavior is needed.
Retailers suffer from not being able to track and know how a customer that walks out of their store really behaves. Has the customer visited before? How often? Where else does the customer go for similar products? What is driving them to choose to purchase at one store vs. the other? Answers to these types of questions impact all aspects of retail operations, from marketing and promotions, to merchandising, to site location and design. Yet, outside of store specific loyalty and charge cards, which are two avenues retailers use to gain some insight into customer behavior, retailers have little to base these decisions on except for changes in sales. Even loyalty and charge cards suffer from the problem of being retailer specific and do not inform the retailer on where else customers go and what else they buy from other retailers.
Advertising and media agencies are responsible for creating the marketing collateral used by manufacturers and retailers to better target and sell to their customers and potential prospects. For these companies, the ability to measure the effectiveness of marketing and better intelligence about customer buying behavior are extremely relevant as they form a critical component of selling their services to their clients. However, measuring media effectiveness has also proven to be one of the major problems facing the advertising industry today.
As discussed earlier, market information is valuable to marketers and other functional users within a company since it has the potential to impact all types of decisions. Using department store retail as an example, market information that informs on site selection and performance is relevant to the operations function within a retail company, whereas market information that informs on marketing effectiveness is relevant to the marketing function. This means that multiple different functional users exist within a company, each with their own set of decisions that need to be made.
At the same time, these types of decisions are made at different levels within a company with strategic decisions being made by corporate management, operational decisions being made by managers and tactical decisions being made by analysts and junior managers. At each level, the type and nature of interaction with market information is different. Thus, a system needs to cater to these intra-company differences in the user base. Within each of the above industries, sectors and corporate functions, tools for a range of job responsibilities need to be offered. A system needs to support activities for the more tactical analyst and manager and also support the more strategically focused activities of senior management.
Referring to FIG. 2, a block diagram of an exemplary retail organizational structure is illustrated. Top executives, or an executive committee, charged with setting the strategic direction for the entire company and ensuring financial productivity, are supported by a Corporate level division that takes care of strategic planning, real estate and market planning (including site location), finance and systems. The strategy is implemented and the business managed by three tactical divisions: merchandise management, marketing, and store management. Merchandise management procures product assortments and sets prices that consistent with the overall strategy. Marketing is responsible for driving consumer traffic and sales. Store management is responsible for all store-related activity, including staff productivity, expense control, human resources (HR), and store appearance.
Market data and insights are used throughout the organization, but the type of application and level of detail varies depending on the function and level. For example, the strategic planning group supports senior management at the corporate level to determine the strategy and business mission that will cascade down throughout the organization. Strategic planners answer questions such as: what business are we in; what should our business be in the future; who are our customers; what are our capabilities; and what do we want to accomplish. Strategic planners synthesize a wide cross-section of information from financial performance data, consumer and demographic trends to key learning from all divisions to determine the future direction of the company.
Also within the corporate function is the real estate group responsible for determining the regions and markets in which to expand and add stores. This group selects the store sites using a combination of geo-demographic data and information on traffic patterns, accessibility, and availability of parking.
The information used by the merchandise management division is quite different. This group is primarily concerned with procuring and estimating demand for products, and setting price points. Their use of information is focused on deciding what items in what color and in what quantities to order. Past performance and consumer trends would inform their decisions. They also have input into where to place merchandise in the store. Insights into consumer shopping behavior are used to make decisions such as placing kids' clothing next to house wares because women shop for house wares and often these shoppers have children for whom they buy clothes on impulse.
Store managers are concerned with very different issues again, such as individual store design and layout, visual merchandising and customer service quality. Store managers are also charged with controlling costs and managing employees. Store managers use sales and expense data and probably are able to access selected consumer insights or trending information as it relates to store layout and design.